Mr. Elfyn Llwyd (Meirionnydd Nant Conwy): As an ex post facto point, I presume that we are permitted to take our jackets off, Mr. Griffiths. If not, it would be too late for mebut I can always put it back on. I am flexible.

The Secretary of State did not comment on the problem of the gross domestic product of Wales having fallen yet further in the past three or four years. It is an indictment not only of this Government but of previous Governments that the relative position of Wales has deteriorated significantly over the past five to seven years. As we all know, large parts of Wales have objective 1 status. We are pleased about that. As we said earlier, it is not a panacea for all ills, but it is a useful tool which, if used properly, will make a difference.

The Government have shown that they recognise that by allocating increases in the block grants to the Assembly over and above those indicated by the Barnett formula. The additional £486 million for 2001-04 is welcome; it will cover grants from the European Union for approved projects in Wales that form part of the objective 1, 2 and 3 programmes and other Community initiatives. This is the first time that Wales will have received from the Treasury the funds earmarked for it by the European Community.

That is a significant and welcome change, due in large part to pressure exerted across the political spectrum by the National Assembly. However, not a single penny has been added to the block grant as a United Kingdom contribution to the match funding that is required under Community rules. We estimate that about £340 million of match funding will be needed from 2001-04, all of which will have to be found by the National Assembly, presumably by raiding the health and education budgets highlighted at the election. There must be a change in emphasis, and I hope the Secretary of State will take note of what I said earlier. If our colleagues in the National Assembly, whatever their political persuasion, are to do their best they must have the appropriate finance to do so.

We are disappointed that there was no mention in the Queen's Speech of the regional imbalances in the UK economy. In an interesting speech, the Secretary of State for Trade and Industry mentioned the difference between the north-east, the south-east, Wales and other parts of the country. He said clearly that there are huge regional imbalances. It should not be beyond the ken of the Government to address those imbalances, which do exist; we in Wales have seen good examples of what happens because of regional imbalances.

I listened to the right hon. Gentleman's reply to my earlier question and I hope that he will push the issue, because we are lagging behind when we should be moving forward, especially with the advent of objective 1 and other initiatives in Wales.

The Government rightly place great emphasis on improving productivity. The Chancellor recently declared:

``From today our energies must be directed to productivity.''

In Labour's first term, productivity growth fell back rather than improving. Britain has an even bigger productivity gap after Labour's first four years; output per worker in the United States is 40 per cent. higher, and in France it is 20 per cent. higher, than in this country. An important reason for the productivity gap is that Britain's workers have less capital equipment. During the late 1990s, capital spending by business was robust, but it was offset by low Government investment. During Labour's first four years in office, net investment by the public sector as a proportion of gross domestic product was the lowest since the war. The one clear result is a dramatic worsening in an already overstretched transport system. The rhetoric we have heard today is more impressive than the action taken; adequate public transport and other services would make a far greater contribution to economic performance than tinkering with taper relief on capital gains tax.

As for competition policy, Plaid Cymru welcomes the Government's intention to strengthen competition policy and, when possible, to remove politicians from the decision-making process in determining individual cases. There is a recognition that if the workings of the market are left to business interests, there will be a tendency to monopoly and abuse of competition. The United States has long recognised that a strong, competitive market requires equally strong anti-trust legislation. We hope to scrutinise the proposed measures when they are presented to ensure that they are both strong and transparent.

The Chancellor has made bold claims that there will be no return to boom and bust while Labour remains in power. That ignores the fact that there has already been boom and bust. For the first three years of Labour's first term, there was bust in the public sector, the effects of which are increasingly apparent in the failure to deliver quality public services. The right hon. Gentleman made the point that the Government will deliver their promises. We will see over the coming years whether that is right. For the sake of all our constituents, I sincerely hope that it is.

The comprehensive spending review now seeks to reverse the trend by increasing public expenditure rapidly in real terms over the next three years. The apparent stop-go approach, however, is not conducive to the effective and efficient management of the public sector. At the end of the three-year period covered by the CSR, the Government will be faced with the choice of cutting back on public spending increases or increasing taxation. Plaid Cymru believes that people earning more than £50,000 should be taxed at a higher ratea progressive view of the taxation system.

Mr. Murphy: Does the hon. Gentleman not realise that the huge increase in public spending in Wales could not have been made without good management of the economy? By not spending money on unemployment benefit or to meet interest on debt, we have been able to invest in the public sector. Management of the economy was essential before increased public spending in Wales could be made.

Mr. Llwyd: The right hon. Gentleman is absolutely on message, as those words have been used at least seven times by the Prime Minister since Christmas [Hon. Members: ``It is true.''] I am coming on to that.

Let me share an experience with other members of the Committee. When I was on the stump during the general election campaign, people did not rush up to say how wonderful the local hospital was, how good it was to see extra buses on the roads or that their little Johnny was in a class of 12. On the contrary, I had complaints, complaints and more complaints. I understand that the budget is always finite and that substantial increases have been made, but those increases followed substantial decreases that resulted from following Tory spending plans.

Mr. Jon Owen Jones: Will the hon. Gentleman give way?

Mr. Llwyd: Let me finish the point. Money may well have been invested, but there is precious little evidence of it so far on the ground. As the Secretary of State says, delivery is the key, so I hope that it happens, particularly in respect of health, education and transportfor the sake of all our constituents.

Mr. Jones: I welcome Plaid Cymru's recognition that the budget is finite. Will the hon. Gentleman admit that the lack of a properly costed budget in the general election was a big mistake for Plaid Cymru? It made them look foolish and they suffered for that lack of seriousness by gaining a poor result.

Mr. Llwyd: I thank the hon. Gentleman, who is obviously still in election mode. After bashing away at the Liberal Democrats, he is now having a bash at Plaid. In Wales the Labour vote went down by 220,000; the Tories' vote by 20,000 and the Liberal Democrats' by 10,000. Our vote went up by 14,000that is how bad the election was for us.

Lembit Ipik: Returning to the hon. Gentleman's previous point, is he saying that people are critical of the Government not because everything that they did was wrong, but because various strategies were adopted since 1997 and the fundamental problems that we all know exist in health and education could have been tackled more effectively if the Government had been a little braver with taxation and more radical with their solutions?

Mr. Llwyd: That is exactly right; I agree entirely with the hon. Gentleman. Increases in spending should have been made earlier. It is all very well for the Government to say that they had to stick to Tory spending plans. They stuck to them in order to gain power, they rigidly adhered to them for more than two years, and now we are paying the price for it. I hope that we will see substantial change, which is in everybody's interests.

As for the old mantra of boom and bust, let me quote from the Financial Times of 21 June this year:

``The minutes of the latest meeting of the Bank of England's monetary policy committee neatly summarises the difficulties. The MPC's is a tale of two economies. Consumers are feeling prosperous. House prices are rising and retail spending is robust. But boom in the personal sector sits alongside bust in the tradable goods sector. The strength of sterling against the euro is crippling. Manufacturing output fell by 0.9 per cent. in April and the sector is set to fall into recession. Reflecting this, the UK registered its largest ever deficit.''

The Government have had a good run of economic management over their first term. Only a fool would deny that. Good luck to them, but the second term may well be more testing. The United States is experiencing a major economic slowdown. Germany is facing recession. The stock markets around the world are in retreat and here in the UK the outlook for growth is deteriorating. The Government's spending plans under the comprehensive spending review are predicated on growth of 2.25 per cent. a year, and even then the public finances move into deficit in 2002-03. In the past the Chancellor has relied on actual growth exceeding his projections to ensure that public finances have a healthier outcome than planned. I hope that his plans are correct and that we are not caught up in any problem caused by other economies, but it is likely that the trick will no longer work with actual growth at a lower rate than planned. The Government would then face the choice of raising taxes, borrowing more or cutting public spending.